Finding strong stocks in weak sectors doesn't always have to involve looking at 100's of charts a day. Today we review how you can use the platform differently to find those ideas.
Stock selection can be easy in some markets, difficult in others. The same can be said when it comes to finding stocks within specific sectors. Strong sectors typically offer a plethora of technically acceptable names to choose from, while weak sectors can make it more difficult to garner exposure. The pure momentum/trend follower might be alright with totally eliminating exposure to certain sectors within their portfolio, but it is unrealistic to assume that every client will be able to completely cut ties with certain sectors- risk adverse clients may be unwilling/unable to vastly underweight healthcare or staples names as a general example. It is for this reason that the prudent advisor always has a handful of names on deck within each sector, regardless of their technical positioning. Today’s feature will go back to the basics, teaching you how to find 1) what sectors NDW would say are weak and 2) the various ways you can find ideas within each of those groups.
Every analyst in the NDW office will have a slightly different approach when answering these questions (and so will you, it is all about finding what makes sense in your workflow) but most of the team will typically start with a top-down approach. Typically, this involves isolating points of strength/weakness on the sector front, and then slowly honing in on individual names from there. To do so, we can utilize NDW’s pair of broad asset level tools, DALI and the Asset Class Group Scores (ACGS) page. The table below displays the current sector positioning as of 10/8. Keep in mind that the scores on the ACGS includes more than relative calculations when generating scores (absolute trend is incorporated as well) meaning that a sector could technically be “acceptable” on ACGS but still be a “relative” loser on a purely relative comparison tool like DALI. Even with that said, we can focus on the current laggard on each page, that being consumer staples. We will use this group as our universe for our “weak” sector to find strong stocks in.
It is worth noting that the following practice could be utilized for any sector, but for simplicity we will focus on consumer staples. To start, both the DALI and ACGS page offer their own list of actionable ideas, which can typically be a good place to start your analysis when trying to find actionable ideas. If you want to journey away from DALI or ACGS, the screenshot below details how to access the NDW buy lists. These lists generate strong stocks across all sectors, refreshed as frequently as daily. In this case, focusing on technically actionable large/mid cap consumer staples stocks offers 15 names you could plug and play into that sector’s stock exposure. The buy list also has breakdowns of high yield or small cap options, giving you more flexibility in how you source actionable ideas. For those of you not looking for stock exposure, newly released ETF buy lists allow you to find technically actionable funds spanning the broad asset groups, including individual sectors.
For those of you wanting to deploy a more “set it and forget it” process when it comes to overall individual sector exposure, you could utilize the custom model tool to constantly rotate to points of relative strength based on NDW’s methodology. The screenshot below details a general ruleset you could apply over different pre-made universe across sectors. The exact ruleset may differ depending on your overall risk tolerance or overall goals…. Use the screenshot as more of general guardrails rather than hard and fast rules. In this specific example, we utilized the consumer staples premade ETF matrix to select the top two funds within the universe, selling when the fund fell out of the top four positions (a lower sell threshold could work better for more volatile sectors.) In plain English, the model uses relative strength to continuously own the strongest funds within the universe, selling when they fall “sufficiently” out of favor. From there, you can utilize the alerts function to be notified via email as trades occur.
All this to say, finding technically strong stocks doesn’t always have to involve searching through hundreds/thousands of PnF charts (but it certainly can). There are options available to you on the platform that can speed up your security selection process, helping you save time in your day and giving you more time to prospect…. Or just get in an afternoon round before the weather starts getting cold.
